How Silafrica is Transforming Africa’s Packaging Industry – An Interview with CEO Gavin Dehning

What are the recent updates on Silafrica’s Mozambique operation?

After registering the company about a year ago, in September 2020, the Mozambique operation has officially started. We have taken some time to get the business licenses, but we have managed to secure contracts with some of the multinational customers that we have in other parts of Africa. We have negotiated off-take agreements that will start towards the end of October, with companies like Coca-Cola. We still are in the process of discussing final arrangements with Heineken. We are having final discussions with Heineken and AB InBev, so we are quite confident that probably, by the end of 2025, we will be taking about a 30-35% market share of the credit business in Mozambique.

What other business opportunities are you looking to exploit in Mozambique?

What we have done in Mozambique is pretty much leveraged from our crate business, because that is our core, stable business and a necessity in most of the countries that have beverage players. From there, what we have done is we have branched out into the rest of our portfolio, so we have three customers now interested in buying closures and preforms from us and a handful of others interested in buying paint pails. From our research on paint pails in the Mozambique market, most of the paint pails are currently imported from South Africa, and not produced locally, so we believe that is another opportunity for us. We also have the equipment and the machinery already in Tanzania that we will be moving shortly into Mozambique.

We also have our eye on the water tank business. There are currently three players producing water tanks in Mozambique, but they are mostly used to produce water tanks for their own distribution. We are going to be doing a water tank business like what we have done in Tanzania, where we will be distributing to hardware stores and hardware-type distributors into the centre, the north of the country.

In principle, I would say 80% of our business in Mozambique is aimed at packaging and 20% at non-packaging, but we are acutely aware that the biggest competitor we have in Mozambique is South Africa. Most of the products that are produced or come into the Mozambique market are sourced directly from South Africa, so that means we have an opportunity. It is both a threat and an opportunity, in that we have to be more competitively priced than what individuals are getting out of South Africa. But at the same time, we have to realise that the quality of the products being produced in South Africa are probably a step higher and a standard higher than one would expect in the rest of Africa. And as a result, we have to maintain that standard, at least, and keep our price acute. We have been doing that in Kenya and Tanzania for quite a while now, so we are quite confident that the Mozambique opportunity will start to yield quite good results. Probably in the next 18 months, we should see a very positive and healthy business start emerging from Mozambique.

What are your strategies for being the top player in the markets you operate in?

Pricing is obviously top of mind for most converters, and I think there are a few ways of getting our pricing right. One is investing in tier-one technology because investing in the best technology means you are competing with the best, which we do in South Africa. This ensures a level playing field.

Secondly, we are looking at using some of our knowledge in recycling and sustainability to drive what we call a recycled regrind material into our product. We are using a lot more recycled materials, particularly in the crates for instance, which we are finding that we are getting some very good return on crate materials because it is slightly cheaper. In fact, in some cases, we are actually getting it for free from the customers and reconverting it back, for them, into fully purposeful crates. To sum up, we are using a little bit of the circular economy, sustainability goals that we put in place for ourselves, to also drive a little bit more competitiveness in our pricing by virtue of the fact that, in our recipes, we actually now use less virgin material and more regrind and recycled material.

Next is looking at the efficiency of our operations, so taking into account our labour and energy costs. What we have done on the energy side is we have invested in solar, in some countries and we will do it in Mozambique as well. Solar has been a large windfall for us in Kenya, and we are currently investing in Tanzania, which has brought down our energy cost by around 18%. Being a converter, we are a big consumer of energy, so when you bring down a big chunk of your cost by 18%, it has implications.

Lastly, it always comes down to competence, and how you train your people, and the quality of the people that you employ. The higher the quality of the people you employ, the more likely you will probably get efficiency out of the manufacturing process, because competence builds quality. Quality then builds cost-effectiveness.

In summary, if you have those four things covered, you can compete with the big players. And that is what we have been able to do quite successfully in East Africa, and that model will play out quite well in Mozambique, and in other future markets like Zambia, Botswana, and South Africa. That recipe will play out in terms of how we become competitive in a highly competitive environment.

What kind of success do you envisage for the Mozambique market? And what would it mean for South Africa?

Firstly, we want to try and allow Mozambique to become self-sustainable in terms of its manufacturing capacity. Mozambique is largely driven by imports out of South Africa and produces very few things, so that builds up a better backward integration supply chain into the country. It also provides much-needed jobs for people in Mozambique, so they are not exporting those jobs to South Africa. We could potentially pick up some of those jobs by virtue of what we are doing, so on the macro level, that gives some benefit.

On a micro level, it broadens our geographical footprint in terms of the African continent. And that is the intention of our shareholders and our board, is to try and establish ourselves as a player on the African continent, and not just domiciled in East Africa.

So the idea is to achieve two benefits. One being for the country itself to be able to become a manufacturer, and the second being an expansion of our own geographic footprint in Africa.

Could you give us an outlook of recent group initiatives for expansion?

We have a couple of things that are going on simultaneously. One is the conversion from paper to crate. We have an idea of where the paper cotton manufacturers are today, so we are looking at the paper manufacturers and saying, this is what they do, these are the customers they serve, and these are the markets they are in. What is it that we could do, as a packaging company producing plastic, to get into that space? And why would it be feasible for us as a plastic manufacturer to even consider getting into paper manufacturing and what would be the benefits for us?

We will be doing a pilot study in November, because we believe there is an opportunity for even better results coming from returnable plastics than using one-way paper cartons. This is because, with one-way paper cartons, 160,000 tonnes of paper waste gets sent to landfills every year. We believe returnable plastic plays a big role in alleviating this environmental problem.

We have been analysing the role we could play in converting paper cartons to returnable plastic cartons. For example, Unilever shampoo bottles come in a box of 48. Why would that box have to be thrown away after it has been shipped to the customer? We would simply want to return that box back to the customer or to the supplier, and be able to ship another 48 shampoo bottles. That is the purpose of the pilot study that we will be doing in November.

In addition, we are now doing a detailed investigation into what is called a bubble board, which is effectively the same as corrugated paper. It is corrugated paper made of recycled plastic. It is an extruded and laminated layer of recycled plastic material, which gets put into an extruder that creates the equivalent of corrugated plastic board, like you would see corrugated brown cardboard cartons. You produce exactly the same concept using a plastic laminated material.

That gives us two advantages. One is that we can use recycled material from landfills. We do not have to worry about going to buy virgin material, so it gives us the ability to take a lot of waste out of the environment. The second thing it does is it gives the user the ability to reuse. Comparing a plastic carton versus a paper carton, a plastic carton is far more durable, giving it much more life, a far longer life cycle, and a much better return on investment.

A plastic carton costs around 15% more than a paper carton. If you buy a paper carton for a dollar, the plastic carton is $1.15. However, when you amortise that over a life cycle of 80 to 100 cycles, then you are removing $1 eighty times from the cycle, so the long-term effects are a huge saving for the distributor or the user of the carton. It does not end up going into landfills and into waste bins, so the reality is massive savings for the economy and for the environment. We believe that is really where innovation is headed to in the East African market, and we are going to have to carefully think about how to make packaging more sustainable. And that is exactly what has happened with South Africa.

Consequently, we have changed our narrative. Originally, our logo was, “we make packaging roar like a lion.” Now we are saying, “we make packaging sustainable,” so that is, in principle, what we are trying to do. We are trying to achieve a sustainable model, with plastic at the forefront of that sustainability.

What challenges have you navigated with regards to the supply chain and material sourcing?

We had a lot of challenges in the beginning of the year with the Red Sea. We have navigated our way around some of those challenges in some respects, but not all of them. Ethiopia still poses a problem and getting goods into Djibouti is still a challenge because of the Red Sea strait. However, the supply chain has become quite stable in the rest of our markets, and the shipping prices have come down quite substantially. Previously, in February this year, we were seeing container freight rates of $8,000 from China, and those rates have come down to around $1,800 to $2,000.

At the same time, we have had to rethink where we source our materials from. What we have done is shifted our supply chain slightly to the East, rather than to the West. We were sourcing a lot out of Canada and America, and we have had to shift some of that to the Middle East and Asia because of the Suez Canal. We are also getting a lot out of India, and out of Saudi Arabia, but through Jebel Ali.

What do you hope to achieve within the next year?

Each country slightly has its own challenges and its own opportunities, but I think the most important thing for me right now is to stabilise Ethiopia, so that Ethiopia becomes more sustainable and stable in terms of its outlook. Regarding Mozambique, we have an objective to get the business rolling very soon, within the next month or so. And my ultimate hope for Mozambique is that, by the end of next year, we have at least 45 product lines running, with maybe six or seven machines. That we can truly say we are manufacturing products in Mozambique for the first time, that are not being currently produced in Mozambique. That will help the economy to some extent.

For Tanzania, it is more about how we manage our pricing with strong competition coming into the market, because we have a lot of competitors that are now entering the Tanzanian market. We are seeing some stiff competition entering for preforms and water tanks, so I think we need to become a little bit more aggressive on our pricing and a little bit less opportunistic.

In Kenya, it is about finding the right level of growth. We have always found growth opportunities in Kenya, while also investing at the same time, resulting in us having a lot of debt. So our Kenya operation needs to get out of its current debt position and become better leveraged in terms of its business. From a Kenyan point of view, we can take an opportunity to grow faster, but to do that, we have to borrow more money. Borrowing more money does not make a lot of sense in the short to medium term, so I think Kenya is more a question of finding the right balance of growth versus debt.

Lastly, in the next two years, we would like to see the group having a footprint in five countries, so that will be Ethiopia, Tanzania, Kenya, Mozambique, and another country. We have our eyes on one or two countries at the moment, to see if we can do a similar thing. Essentially, we use the bootstrap approach to enter a country, using our multinationals as our entry point. We have a long-standing relationship with multinationals that gives us a little bit of an introduction to the country. For example, starting a business in Mozambique is about starting a trade business that becomes a preformed business, that becomes a water tank business, and that becomes a whole range of other businesses.

We can get into Zambia, South Africa, and into many other countries mainly because of the longstanding relationship we have had with the big multinationals: Coca-Cola, Pepsi, AB InBev, BGI, and Heineken. These companies have all been in our books for many years and we have supported them for many years, so it gives us a good point of leverage. That is, essentially, our tactical strength.

What recent success stories can you share with us?

We received the final award for 100% volume of the Coca-Cola business in Mozambique. The deal was signed sometime in June, and that was a huge success.

We have received the Master Supply Agreement, and we are now the sole suppliers of crates in Mozambique, which is a big positive.

Secondly, we have launched, in Tanzania, the agro crates that we did in Kenya. That has also been a big upside in Tanzania. We sold about half a million of these crates in the first half of the year, so we have expanded our footprint on the agricultural side quite a lot.

To conclude, the other one that is really coming up as a big positive is this bubble board project that we are looking at now. We are looking at putting in some equipment, and we are doing some feasibility studies. We anticipate this will yield huge results for the group as a whole over time, because it gets us into the paper carton space, which is a $140 million business.

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